Question

Hi , I need with this question.

A delivery truck was acquired on January 1, 2017, at a cost of $65,000. The delivery truck was originally estimated to have a residual value of $5,000 and an estimated life of five years. The truck is expected to be driven a total of 200,000 kilometers during its life, distributed as:

Year	Number of Components 37,000 42,000 45,000 40,000 36,000
2017
2018
2019
2020
2021

Using the straight-line, units-of-production, and double-diminishing balance methods, answer the following questions.

1. The 2017 depreciation expense using the units-of-production method is:

2. The 2018 depreciation expense using the straight-line method is:

3. The 2018 depreciation expense using the double-diminishing balance method is:

4. The 2019 depreciation expense using the units-of-production method is:

5. The book value on December 31, 2018, using the straight-line method is:

6. The book value on December 31, 2018, using the double-diminishing balance method is:

7. Which method results in the lowest depreciation expense in the first two years?

8. Prepare the adjusting entry to record the 2020 depreciation expense based on the units-of- production method.

Date	Account Titles	Debit	Credit

Answer 1

1) Units of Production Method:

Depreciation cost per Kilometer = (Cost - Residual value)/Useful life in Kilometers

= ($65,000 - $5,000)/200,000 kms

= 0.30 per km

Calculation of Depreciation Expense under this method (Amounts in $)

Year	Beg. Balance Truck/Cost (A)	Depreciation Expense (B)	Accumulated Depreciation	Ending Balance Truck (A-B)
2017	65,000	11,100 (Q-1)(37,000*0.30)	11,100	53,900
2018	53,900	12,600 (42,000*0.30)	23,700	41,300
2019	41,300	13,500 (Q-4) (45,000 *0.30)	37,200	27,800
2020	27,800	12,000 (Q-8) (40,000 *0.30)	49,200	15,800
2021	15,800	10,800 (36,000 *0.30)	60,000	5,000

2) Straight Line Method:

Depreciation expense per year = (Cost - Residual Value)/Useful Life in Years

= ($65,000 - $5,000)/5 years = 12,000 per year

Calculation of Depreciation Expense under this method (Amounts in $)

Year	Beg. Balance Truck/Cost (A)	Depreciation Expense (B)	Accumulated Depreciation	Ending Balance Truck (A-B)
2017	65,000	12,000	12,000	53,000
2018	53,000	12,000 (Q-2)	24,000	41,000 (Q-5)
2019	41,000	12,000	36,000	29,000
2020	29,000	12,000	48,000	17,000
2021	17,000	12,000	60,000	5,000

3) Double Diminishing Balance Method:

Double Diminishing depreciation rate = (1/Useful life in years)*2

= (1/5 yrs)*2 = 0.40 or 40%

Calculation of Depreciation Expense under this method (Amounts in $)

Year	Beg. Balance Truck/Cost (A)	Depreciation Expense (B = A*40%)	Accumulated Depreciation	Ending Balance Truck (A-B)
2017	65,000	26,000	26,000	39,000
2018	39,000	15,600 (Q-3)	41,600	23,400 (Q-6)
2019	23,400	9,360	50,960	14,040
2020	14,040	5,616	56,576	8,424
2021	8,424	3,370	59,946	5,054

The solution to the required question is shown as follows:-

1. The 2017 depreciation expense using the units-of-production method is: $11,100

2. The 2018 depreciation expense using the straight-line method is: $12,000

3. The 2018 depreciation expense using the double-diminishing balance method is: $15,600

4. The 2019 depreciation expense using the units-of-production method is: $13,500

5. The book value on December 31, 2018, using the straight-line method is: $41,000

6. The book value on December 31, 2018, using the double-diminishing balance method is: $23,400

7. Which method results in the lowest depreciation expense in the first two years:- The accumulated depreciation balance as on December 31, 2018 is lowest under units of production method (i.e. 23,700) ($24,000 under straight line method and $41,600 under double diminishing balance method). Therefore Units of production method results in the lowest depreciation expense in the first two years.
8. Prepare the adjusting entry to record the 2020 depreciation expense based on the units-of- production method.

Date	Account Titles	Debit	Credit
Dec 31,2020	Depreciation Expense	12,000
	Accumulated Depreciation		12,000
	(To record the depreciation expense)